Putting aside the impact of the Fed's LSAP's (and tapering) on the level of long term interest rates, I've held on to a few different trends as to why I believe a material rise in interest rates is unlikely in the near future. Said a different way, various data series have signified to me why the potential of the recovery is limited all else equal.

I closely watch the growth of commercial bank loans outstanding. One could argue the shift to non-bank lending makes this metric less important post the great financial crisis, however it is still one of the most pure indicators of credit creation in the financial system. Anyone who has tracked the Fed's H8 report (asset & liabilities of the top 25 banks) has noticed a paltry growth trend in outstanding loans. In short, excluding a reclassification in 2010, total loans and leases are still below levels seen in 2008.

Part of this is easily explainable. For instance, real estate loans declined precipitously since 2008 due to defaults and has only recently started to climb again. Meanwhile since the GFC commercial banks have made a "student body left" out of real estate loans and into "C&I" loans. The C&I sector has been the main driver of loan growth while consumer & real estate lending languishes. Fast forward to this past Friday where we saw a material $25bil week over week increase in bank loans & leases. Is this jump just noise or the start of something greater? After seeing YoY growth levels fall through this summer, we're now seeing a reversal of this. This is a bullish sign and something that's been lacking.

Also released on Friday, we saw consumer credit rise materially above consensus expectations. Unlike the recent past where the increase was primarily driven by student loans, a large amount of the pick up was in the revolving credit segment. Again, this is something we haven't seen in some time now. There's been an overall reluctance to take on debt in the consumer segment.

QE has caused base money to explode as reserves are added to the system through bond buying all the while broader measures of money supply have grown tepidly. This could be changing if recent trends in consumer credit and bank lending are any indication.

Should employee wages start to gain traction we could see monetary velocity pick up materially. Guillermo Roditi recently wrote a great piece which posited that wage growth could soon be on the horizon.

Either way, we should be paying close attention to credit creation and if last week's data were any indication, higher velocity and therefore higher interest rates could be in store.

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